Governor Cuomo unveiled a comprehensive agenda to combat climate change by reducing greenhouse gas emissions and growing the clean energy economy in the 2018 State of the State on January 3, 2018. My reaction to one aspect of this reminded me of the VW Sign then Drive Event – “Really?” commercials. In the commercial a kid rows a gutter ball and says “Really?”, a lady gets no responses to a party and says “Really?”, and so on. The 20th proposal of the 2018 State of the State: a comprehensive agenda to combat climate change by reducing greenhouse gas emissions and growing the clean energy economy made me think the same thing. In particular is this little gem to undertake “revisions to strengthen RGGI by grouping together and thereby covering peaking units that collectively exceed RGGI’s capacity threshold of 25 megawatts”.

The rationale in the agenda is that:

RGGI only covers power plants with a capacity of 25 megawatts or greater, leaving out many smaller but highly-polluting, high demand “peaking” units, which operate intermittently during periods of high electricity demand. These polluting units are often located close to population centers that come online to meet peak electricity demand on excessively hot or cold days, and disproportionately impact low-income and minority communities that already face a multitude of environmental burdens.

I never really thought too much about the CO2 emissions from the peakers because after all they don’t run much and they are small although admittedly relatively inefficient. So I looked into it. Table 1 New York State CO2 Emissions by Control Program lists operating data and CO2 emissions. Of course you run into a problem immediately inasmuch as about two thirds of the peakers don’t even report CO2. Nevertheless I managed to come up with an estimate. I downloaded all the Environmental Protection Agency Air Markets Program New York unit annual emissions for all reporting programs from 2009 to 2016. I categorized the units by RGGI program; Other Program, 5-month reporting; and Other Program 12-month reporting. In 2016 the RGGI unit CO2 total was 31,194,515 tons and the peaker units already included in RGGI CO2 total was 245,987 tons.

In order to estimate CO2 emissions from the units that don’t report I assumed that the CO2 rate per operating time would be the same for peakers that report and those that don’t to calculate a conversion for the 5 month units. I multiplied that conversion factor by the reported operating times and assumed that it should be pro-rated across the entire year by multiplying by 12/5. Using those assumptions the total CO2 peaker emissions increase 215,000 tons to 460,987 tons or about 1.4% of the total emissions.

One of my biggest problems with the New York State clean energy programs is the apparent lack of an end game. I think the primary rationale for this is the environmental justice angle that the peaking units “disproportionately” impact low-income and minority communities. So it looks like the goal is to shut these units down.

Peak load days correspond to highest emissions days but the problem is that the peaking turbines needed to provide the peak load are old, inefficient and relatively high emitting. Consequently there is an extra kick of NOx pollution which as a precursor to ozone creates problems meeting the ozone ambient air quality standard. That is a real problem but conflating that with CO2 “pollution” is silly at best.

The State has never explicitly produced a game plan to replace the turbines in question. For example, consider July 20, 2015 which is the highest emissions day that year. The total gross load from all electric generating units in New York on that date was 303,967 MWh. Units covered by the RGGI program generated 297,350 MWh or 97.8% of the load. There already are combustion turbines covered by RGGI and they accounted for 19,960 MWH or 6.6% of the load. The non-RGGI combustion turbines targeted by the agenda only accounted for 2.1% of the load but that was still 6,369 MWh. The problem is that all of the combustion turbine generation was dispatched when it was needed, where it was needed in the New York City transmission system, and was not subject to weather. It is a non-trivial exercise for the Governor’s renewable energy program to replace that generation with those constraints.

I suppose proponents for including these units in RGGI could think that the revenues resulting from the sale of the RGGI allowances necessary to run could be invested to replace the peaking turbines. But 215,000 allowances at even $5 per ton is only $1,075,000. If those funds were allocated to the Clean Energy Fund then you could expect 3,575 MWh reduction based on calculations derived from my estimate of the NY RGGI operating plan. On the face of it that is pretty close to the 6,369 MWh number above but the gob smacking issue is that the 6,369 MWh is for one day and the 3,575 MWh is for a year!

UPDATE: The stakeholder meeting was held on 2/13/2018 and I never received a response to my request for a webinar and the meeting did not include remote access. Ironically, I understand one of the topics of conversation was an initiative to control CO2 emissions from the transportation sector.

On January 25, 2018 several New York State (NYS) agencies announced a stakeholder meeting for NYS interests in the RGGI proceeding. These agencies should be leading by example but this announcement demonstrates to me their actual lack of commitment to their espoused goal.

The notice stated:

On February 13, 2018, the Department of Environmental Conservation (DEC), New York State Energy Research and Development Authority (NYSERDA), and Department of Public Service (DPS) will host a New York State stakeholder meeting to follow the Regional Greenhouse Gas Initiative (RGGI) regional stakeholder webinar scheduled for January 26th, and to discuss next steps related to the conclusion of the 2016 RGGI Program review. The meeting in Albany will build upon the regional meetings held to date and provides an opportunity to discuss New York specific topics related to the RGGI model rule implementation in New York. This includes forthcoming proposed revisions to DEC’s regulation implementing RGGI in New York, 6 NYCRR Part 242, CO2 Budget Trading Program.

My problem is the following:

This meeting will be in-person only to better facilitate dialogue as New York kicks off it’s stakeholder process. Additional meeting dates, including webinar opportunities may be made available to interested parties that cannot attend this meeting.

In my opinion, New York has set aggressive emission reduction targets more as a slogan and support for Governor Cuomo’s political ambitions than a rational action. At the top of the list of support for that statement is the decision to eliminate 10% of the state’s total electrical energy and 17% of the carbon free electrical energy by closing Indian Point. The fact of the matter is that in order to meet the Reforming the Energy Vision goal of an 80% reduction of GHG emissions by 2050 it will take enormous effort, require NYS citizens all to make sacrifices and accept some inconveniences. See for example this article on tradeoffs. State agencies should be leading by example. That the agencies would prefer to require attendees to increase their carbon footprint to attend a meeting solely “to better facilitate dialogue” is inconsistent with that reality. As Glenn Reynolds said: “I’ll believe global warming is a crisis when the people telling me it’s a crisis start acting like it’s a crisis.”

I submitted a comment to the contact address that included that point on January 27, 2018 and asked for remote access. If the agencies respond to that request I will update this post.

The New York State Department of Environmental Conservation (DEC) Office of Climate Change publishes a regular email that lists the latest climate news. The latest edition shows that news has to be consistent with their preconceived notions of global warming. In this edition they use information to prove their case for climate change problems at the same time as they claim similar information cannot be used to not suggest climate change is not a problem. Talk about trying to have their cake and not eating it too.

Before proceeding a disclaimer. Before retirement from the electric generating industry, I was actively analyzing air quality regulations that could affect company operations. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

There are two articles that show the inability of the Office of Climate Change to really understand that there are two sides to the issue of climate change. The lead article is a picture of extensive ice at Niagara Falls with the following caption: “Extreme cold at the end of 2017 has frozen all but the moving water at Niagara Falls. Recent research suggests that a warming arctic may be contributing to cold snaps like this one in the Northeastern U.S. as a result of a weakened polar vortex.”

“Weekly or daily weather patterns tell you nothing about longer-term climate change (and that goes for the warm days too). Climate is defined as the statistical properties of the atmosphere: averages, extremes, frequency of occurrence, deviations from normal, and so forth. The clothes that you have on today do not describe what you have in your closet but rather how you dressed for today’s weather. In reality, your closest is likely packed with coats, swimsuits, t-shirts, rain boots, and gloves. In other words, what’s in your closet is a representation of ‘climate.’”

I agree completely that weekly or daily weather patterns are no indicator of longer-term climate change. If it is not immediately obvious the “recent research” analysis about the cold weather is trying to make an argument about weather patterns as an indicator of longer-term climate change. I am sorry but you cannot have it both ways.

If the Office of Climate Change deigns to correct this that might also want to mention to the Governor that he consistently is guilty of the same thing. He consistently refers to Superstorm Sandy as devastation related to climate change and has mentioned the November 2014 Buffalo lake effect snowstorm as further proof. Both were caused by short-term weather patterns. In order to prove otherwise historical weather patterns would have to be evaluated to determine if there was a change over time. In my opinion running a climate model to claim causation is dubious at best.

This is a post on the New York State Operating Plan which is supposed to determine the best use the Regional Greenhouse Gas Initiative (RGGI) auction proceeds that accrue to New York State (NYS). It is another in a series of posts on RGGI that discusses how RGGI has fared so far (see my RGGI posts page). This post shows how far the public face of RGGI is from reality relative to NYS emission reduction goals.

I have been involved in the RGGI program process since its inception. Before retirement from a non-regulated generating company, I was actively analyzing air quality regulations that could affect company operations and was responsible for the emissions data used for compliance. As a result, I have a niche understanding of the information necessary to critique the operating plan. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

The responsibility for RGGI implementation is shared by the Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA). DEC set up the regulatory requirements for the affected sources and NYSERDA handles the money from the allowance auctions. The operating plan outlines how the money will be invested in programs to reduce emissions. The problem is that the budgeted program investments coupled with historic CO2e emission reduction benefits from those programs calculated by the agencies are woefully short of what is needed to meet the NYS emission reduction goals.

On December 20, 2017 the annual operating plan stakeholder meeting was held. You can see the operating plan documents, slides presented and access a recording of the meeting at the NYSERDA Use of Auction Proceeds website. In the opening remarks at the meeting the story from the agencies was that RGGI has been a rousing success and the investments have been a significant factor in that success. Alicia Barton, NYSERDA President, said that RGGI was “extraordinarily successful in driving positive environmental outcomes and fostering clean energy” and would be useful implementing a “cleaner, more reliable and more affordable future in the electric system”. Julie Tighe, DEC Chief of Staff, said that “emissions from the power sector in New York have fallen more than 50% since the states agreed to set the cap in 2005.” This post addresses the claim that RGGI investments have been an effective tool driving positive environmental outcomes. Tighe’s statement conflating the emissions reductions with setting the RGGI cap clearly implies that the reason the emissions went down was because of RGGI. I have already evaluated the actual impact of RGGI on emissions here that shows that her statement is wrong.

Analysis

Two documents released as part of the Operating Plan stakeholder process provide the information necessary to determine the potential effectiveness of the operating plan programs on reducing CO2e emissions. The calculated expected (CO2e) tonnage benefits to date are in RGGI Operating Plan (“2017 Operating Plan”) Table 1: Cumulative RGGI Benefits by Program. In DRAFT – 2018 RGGI Operating Plan Amendment (“Draft 2018 Operating Plan Amendment”) Table 1: Revenues and Program Funding Allocations, the proposed RGGI allowance revenue program investments for the next three years are listed. Multiplying the total budget amounts by the observed emission reductions dollars per ton benefits is all that is necessary to estimate how much CO2e is expected to be reduced.

Table 1 Comparison of RGGI Program Investments in this post combines information from both of those tables and a slide (Program Investments of $245M for FY 18-21 below) in the stakeholder presentation that describes the proposed program investments for the next three years. It was an interesting exercise to figure out how the categories meshed between the Draft 2018 Operating Plan Amendment and the Program Investments slide but I think the listings in my table are close. The total program investments budgeted in Fiscal Years 2018-2019 are $244.5 million. At the stakeholder meeting five investment strategies were described:

Building capacity for long-term carbon reduction

Energy Efficiency and Renewable Energy technologies

Empowering New York communities and transition to cleaner energy

Innovative financing

Stimulating entrepreneurship and growth of clean energy

Those categories are listed under Stakeholder Presentation in Table 1 Comparison of RGGI Program Investments. The specific programs from the Draft 2018 Operating Plan Amendment are listed opposite those strategies.

For each of the specific programs the $ per ton annual benefit calculated values presented in the 2017 Operating Plan was included in the table. Note that the category “Directed to the State – Environmental Tax Credits category did not have a $ per ton benefit calculated. I used the lowest of the three EE/RE cost benefit numbers to give the most CO2e reduction bang for the buck. Neither of the Empowering New York communities and transition to cleaner energy categories in the 2017 Operating Plan had emission reduction benefits calculated. The Directed Electric Generation Facility Cessation Mitigation Program provides payments to municipalities that depended on large fossil-fired generating plant property taxes when those facilities are closed down which certainly does not translate into reductions. Community Clean Energy programs “support the transition to sustainable and resilient communities” which apparently does not translate into direct CO2e reductions

Finally, the program 3-year investments are divided by the $ cost per ton benefit to determine how much CO2e reduction can be expected. For the $244.5 million investments the projected annual (how much is expected each year from the investment) emission reductions total is 268,595 tons of CO2e. The annual investment emissions reductions expected is one third of that or 89,531.

Let’s put those numbers into context. The RGGI model rule states:

The regional emissions cap in 2021 will be equal to 75,147,784 tons and will decline by 2.275 million tons of CO2 per year thereafter, resulting in a total 30% reduction in the regional cap from 2020 to 2030.

The New York share of the total allocations is 38.9% so New York’s share of the emission reductions necessary is 885,721 tons per year. The New York investments from the RGGI allowance auction revenues are expected to only reduce emissions 89,531 tons at an average investment rate of $81.5 million. In other words the RGGI investments are only expected to provide about 10% of the needed emissions reductions. If we back calculate to determine how much would have to be invested in these programs to get all 885,721 tons needed each year, it would take $731 million per year. That translates into a weighted average allowance price of $48 per ton, nearly nine times the assumed price.

Even more gob smacking is the NYS Reforming the Energy Vision (REV) goal of a 40% reduction of 1990 emissions by 2030. NYS 1990 emissions were 205.8 million tons so the 2030 goal is 123.5 million tons. In 2015 NYS emissions were 178.9 million tons so for the next 15 years annual emission reductions have to be just under 3.7 million tons per year to get to the target goal. It would take over $3 billion per year to be invested in these programs to get the 3.7 million tons needed each year to meet the 2030 REV goal.

Conclusion

Actually looking at the performance of the RGGI investments and determining the cause of electric sector emission reductions tells a completely different story than that presented by NYSERDA and DEC at the NYS RGGI operating plan stakeholder meeting. RGGI investments are not providing anywhere near the emission decreases necessary to meet the additional 30% RGGI cap reduction that New York championed. As shown elsewhere, fuel switching was the primary reason emissions dropped since 2005 and the problem is that there are limited opportunities for further reductions. Given that simply using their own numbers to determine the effectiveness of their investments tells a different story than the public overview does not portend well for the ambitious goals of Governor Cuomo.

This is a post on the announcement of the completion of the second program review process of the Regional Greenhouse Gas Initiative (RGGI). The RGGI states completed their first program review process in 2013, and in Dec. 2017 completed a second program review process resulting in the 2017 Model Rule. This is another in a series of posts on RGGI that discusses how RGGI has fared so far (see the RGGI posts page).

I have been involved in the RGGI program process since its inception. Before retirement from a non-regulated generating company, I was actively analyzing air quality regulations that could affect company operations and was responsible for the emissions data used for compliance. As a result, I have a niche understanding of the information necessary to critique the operating plan. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

The 2016 program review page lists the following documents that summarize the results:

Overall, the RGGI program review has been a rigorous and comprehensive evaluation, supported by an extensive regional stakeholder process that engaged the regulated community, environmental nonprofits, consumer and industry advocates, and other interested stakeholders. The improvements arising from this process, now included in the updated 2017 Model Rule, will ensure RGGI’s continued success, cost-effectively reducing CO2 emissions while providing benefits to consumers and the region.

My biggest concern with RGGI is that the States seem to have convinced themselves that they have actually done a rigorous and comprehensive evaluation. Contrary to EPA and State agency rulemakings, RGGI does not formally and comprehensively respond to critical comments and rebut concerns raised by stakeholders. On the other hand, the regulated community did not provide much in the way of critical comments. While RGGI claims engagement with the regulated community the fact is that comments from the affected sources are in the minority of the comments submitted. I believe that is because, after years of submitting comments and getting no, and I mean absolutely no, response or indication that the comments have even been read much less provide any feedback why the comments and recommendations have been ignored the regulated community has given up.

In addition there is a public relations concern. Advocacy groups, most of the media and many politicians constantly portray reducing CO2 emissions as an essential and noble objective. Any deviation from that goal can bring adverse publicity, accusations of denying the science, and, potential recriminations by the regulatory agencies for other projects. As a result there is a legitimate reason for affected sources to stay silent.

Importantly, however the proposed changes to the program are unprecedented in several ways that, in my opinion, have not been addressed in the program revisions:

Supporters of the tighter caps want the cap so low that it will be a constraint but I am not aware of any cap and trade program that has set the caps so low that they constrain operations.

This allowance program is different because in this allowance bank non-compliance entities that own allowances purchased them whereas in cap and trade programs the excess allowances enter the market because they were deemed excess by a compliance entity. At some point the regulated sources are going to have to rely on non-compliance entities for allowances necessary for compliance and it is not clear how the market will react (but my suspicion is that it will cost a lot more than we have seen to date.)

Arbitrarily adjusting the allowance bank because it is “too” big is unusual for cap and trade programs. Whether they got the adjustment right and how it plays out in this unique system are unknown.

The containment reserve provisions are another unique aspect of RGGI. This is particularly worrisome because the academic theory on how the program should work is not supported by the history of the program. This new adjustment certainly is another substantial uncertainty.

Finally, the analysis of the impacts of RGGI are determined using the Integrated Planning Model. The problem with the model is that it has perfect vision so it predicts the power sector will react perfectly. This certainly is not supported by past history.

Because I have spent a lot of time with those comments that were not addressed, I want the record to show exactly what the regulated community and one retired guy who no longer has any ties to that community were worried enough about to submit relative to the following changes described in the summary of model rule updates. A reminder the issues highlighted below represent my opinion only and not necessarily the position of any RGGI-affected source or even the current position of the organizations that submitted the comments.

Size and Structure of Cap and Allowance Apportionment (XX-5.1)

The regional emissions cap in 2021 will be equal to 75,147,784 tons and will decline by 2.275 million tons of CO2 per year thereafter, resulting in a total 30% reduction in the regional cap from 2020 to 2030.

One major concern of environmental staff in the regulated community is an environmental constraint that cannot be achieved by the actions of the affected sources. Ultimately this is the biggest worry about any CO2 control program because there is no cost-effective add on control option available to reduce CO2 so that limits what an individual affected source can do. The largest emission reduction option available is to switch fuels either directly by changing the fuel used or indirectly by running at higher emitting fuel units less and lower emitting fuel units more. There are some options available for increased efficiency but because fuel costs are a major cost driver most of the big impact efficiency possibilities have already been implemented. The ultimate compliance option for an affected unit in any cap and trade program is to simply stop running when the allowances run out.

As a result of this concern the Environmental Energy Alliance of New York (EEANY) submitted a White Paper in June 1, 2016. That analysis showed that of the observed emission reductions RGGI was only responsible for somewhere between 24% predicted by an econometric modelling analysis by Murray and Maniloff and 3%, assuming that energy savings estimated by RGGI are replaced entirely by natural gas. The primary driver of lower CO2 emissions since RGGI’s inception was fuel switching from coal and oil to natural gas and that was the result of lower relative fuel prices independent of RGGI. The problem that should be addressed is that future emission reductions will not be able to rely on fuel switching.

EEANY comments on 10/16/2017 pointed out that the Investment Status Report for the period ending 12/31/2015 claims that the annual benefits of 2015 annual investments avoided 298,410 tons of CO2 which is 13.1% of the 2,275,000 proposed annual reductions starting in 2021. The concern is that the investment reductions have not been very large and it is not clear what could be done to dramatically increase those reductions.

I also submitted comments on this problem that made the same points. “The proposed program revisions released last month for RGGI call for an annual post-2021 cap reduction of 2,275,000 tons per year. In the Proceeds Investment Report, Table 1: Benefits of 2015 RGGI Investments Program, it lists the annual benefits of 2015 investments and shows an annual CO2 reduction of 298,410 tons. As also shown in the white paper submitted to RGGI by the Environmental Energy Alliance of New York the affected electrical generation units have made most if not all of the cost effective reductions possible from their operations. As a result, future reductions will have to come from sources outside the affected units and RGGI has no track record providing any assurance that its investments will be sufficient to meet the targets proposed. The fact is that RGGI has not provided a roadmap for the 30% reductions that they have proposed so it is not clear how this will work.

The majority of the commenters during the program review claimed that even greater emission cap reductions were appropriate because of the observed reductions. The model rule reflects that position. RGGI never responded to the EEANY White Paper analysis of historical reductions and ignored their own analyses that showed that relying on past investments have provided relatively small emission reductions.

Therefore the most important uncertainty is where are the emission reductions going to come from?

Budget Adjustments (XX-5.3)

The Model Rule contains language to address the private bank of allowances through one additional, distinct budget adjustment.

The Third Adjustment for Banked Allowances, would adjust the base budget for 100 percent of the pre-2021 vintage allowances held by market participants as of the end of 2020, that are in excess of the total quantity of 2018, 2019, and 2020 emissions. The third adjustment timing and algorithm is spelled out in the Model Rule and would be implemented over the 5-year period, 2021-2025, after the actual size of the 2020 vintage private bank is determined.

Banked allowances are surplus at the time the bank is determined. Compliance entities bank allowances to provide margin for future operating variations and potential monitoring problems. Proponents for tighter emission limits seem to want the available allowances to exactly match emissions but that is unprecedented in all previous trading programs.

The EEANY White Paper noted that: “In cap and auction programs that distribute the allowances directly to compliance entities the allowance market consists primarily of surplus allowances from compliance entities that do not need them for compliance. In the RGGI auction scheme allowances are available to anyone willing to purchase them. In the worst case non-compliance entities could purchase all the allowances in the auctions then charge affected sources above market prices. That has not happened and is unlikely to happen in the future. Importantly we have no data to indicate what level of non-compliance entity holdings would adversely affect the market.”

Cost Containment Reserve (XX-5.3(d) and XX-9)

The Model Rule contains language for the continued use of a cost containment reserve (CCR) that will provide flexibility and cost containment for the program. The CCR would consist of a fixed quantity of allowances, in addition to the cap, that would be held in reserve, and only made available for sale if allowance prices exceed predefined price levels.

The Model Rule contains language for an annual CCR allowance quantity of 10% of the regional cap beginning in 2021 and each succeeding year thereafter.

Allowances from the CCR would be fully fungible.

The CCR allowances would be made available immediately in any auction in which demand for allowances at prices above the CCR trigger price exceeds the supply of allowances offered for sale in that auction prior to the addition of any CCR allowances.

If the CCR is triggered, the CCR allowances would only be sold at or above the CCR trigger price.

The CCR Trigger Price will be $13.00 in 2021 and rise at 7% per year, so that the CCR will only trigger if emission reduction costs are higher than projected.

Emissions Containment Reserve (XX-5.3(e) and XX-9)

The Model Rule contains language for the creation and use of an emissions containment reserve (ECR) that will respond to supply and demand in the market if emission reduction costs are lower than projected. States will withhold allowances from circulation to secure additional emissions reductions if prices fall below established trigger prices. At this time, Maine and New Hampshire do not intend to implement an ECR. Allowances withheld in this way will not be reoffered for sale.

The Model Rule contains language for an annual ECR allowance withholding limit of 10% of the budgets of states implementing the ECR.

The ECR trigger price will be $6.00 in 2021, and rise at 7% per year, so that the ECR will only trigger if emission reduction costs are lower than projected.

Containment Reserve Comments

The RGGI states have relied on academics to evaluate their program. Dr.William Shobe at the University of Virginia can run allowance behavior simulations with students acting as affected entities and presented results of a Resources for the Future and University of Virginia ECR analysis in a RFF webinar on June 14, 2017. EEANY raised an important point about a misconception in the academic perception of allowance management. In particular, there is a potential disconnect between the economic theory of allowance management and the reality of compliance entity allowance management. Economic theory presumes that allowance management decisions depend on long-run future outlooks of allowance supply and demand whereas in reality most compliance entity allowance management is determined almost entirely by short-term requirements, particularly for the current compliance period.

In Dr. Shobe’s June 14th presentation he draws the analogy between allowances and commodities. In the commodity world the decision between selling and storing the commodity today is determined by the long run anticipated future price of that commodity. If it is expected that there will be less of the commodity available in the future then the price will likely go up over time and entities will stockpile now to sell at a later time when the price is higher. In putting forth this economic theory, Dr. Shobe postulates that if compliance entities know that the allowance supply is going to be reduced in the future then current behavior will reflect that and they will purchase additional allowances now to bank for future use. Clearly, this describes the motivation and analysis of non-compliance entities but it is not driving allowance-buying decisions by compliance entities.

This “allowances are like commodities” theory is highlighted on Slide 19 in the presentation which states that it is the long-run supply that counts. “In markets for storable commodities (like allowances, for example), the current price and the plan for accumulation of a stock of the commodity depend on

The expected long-run total supply compared to

The expected long-run total demand.”

The reality of compliance entity management is that there is rarely long-term planning on the time scale envisioned by Dr. Shobe. RGGI allowances are typically purchased by the compliance entities for the current compliance period. Compliance entities do not want to tie up capital in allowances because they have other more pressing needs for that money. As compliance entities have become familiar with the auction system and their operational needs their share of the allowance bank has shrunk. Simply stated, the analogy between storable commodities and allowances is not appropriate.

Compliance entities have long commented that the perfect foresight of IPM which predicts that affected sources will buy allowances in early years because there will be a shortage in the future is not representative of actual behavior. It appears that this is also an issue with academic theories of allowance management. At timestamp 44:10 of the June 14th webinar recording, Dr. Shobe states that “students understand the ECR and they make coherent inter-temporal decisions” in the allowance management lab. Intertemporal is an economic term describing the “concept of how the current decisions made by an individual can affect the options that become available to them at a future time.” The student behavior is consistent with Dr. Shobe’s expectation that current allowance purchases will be dictated by long-run perceptions of supply and demand.

Offsets (XX-10.2 and XX-10.5)

The Model Rule contains language that eliminates two offset categories, the “SF6 Offset Category (XX-10.5(b))” and the “End-Use Energy Efficiency Offsets Category (XX-10.5(d)),” and updates and retains three categories that some States may continue to implement. Any awarded offset allowances would remain fully fungible across the states.

EEANY comments July 17, 2017 : Presuming that the analysis in the last program review was correct, the number of surplus allowances available should approach zero by 2020. How the auctions and the secondary market will respond to the first-ever scarcity situation is an unknown.

The Alliance recommended that the RGGI States would be wise not to significantly alter the parameters of the RGGI market until this condition is fully explored in real-time.

Compliance entity share of the allowance bank

EEANY comments June 6, 2017: The compliance entity share of the market is an even more pressing concern. Table 1a shows that the compliance entity share of allowances could be less than 20% as soon as 2018 and Table 1b shows that even if the Cost Containment Reserve is triggered each year from 2017 to 2020 the compliance entity share of the allowances will be less that the recommended 20% by 2020.

This trend shows that compliance entities will have to go to the non-compliance entities to obtain enough allowances to operate. It is not clear how this will affect market prices.

Allowance management theory

EEANY comments August 3, 2017: Economic theory presumes that allowance management decisions depend on long-run future outlooks of allowance supply and demand whereas in reality most compliance entity allowance management is determined almost entirely by short-term requirements, particularly for the current compliance period.

The Alliance recommended that RGGI sponsor an allowance management lab test with Dr. Shobe that uses compliance entity allowance managers. We believe that it would be a learning experience for everyone and that the result would be a better representation of what could happen with an ECR and CCR.

Integrated Planning Model

EEANY comments June 29, 2016: IPM presents the best case scenarios to determine the viability of further reductions because it has perfect vision. Because it “knows” that the emissions have to be at a certain level by 2030 the model predicts that more renewables will be built sooner so that an allowance bank is built up for the later years when the cap is smaller. It also assumes that affected sources will purchase allowances and bank them for the smaller cap years down the road.

These flaws are related to the allowance management theory argument described above. As a result the Alliance suggested that it would be prudent to wait and change major parameters individually until the effects of each change are known.

Conclusion

The program changes in the 2016 RGGI review affect multiple moving parts at the same time. The result will be several unprecedented aspects of the program. Despite assurances from the agencies I remain unconvinced that the “rigorous and comprehensive evaluation” touted by RGGI will in fact preclude the possibility of significant problems. Rather than taking a measured systematic implementation approach RGGI has chosen to change everything simultaneously. I am not optimistic that these changes will all work out as planned and think there is a chance that the success of RGGI to date will be endangered.

There are two aspects of the recent presentation Great Lakes Vineyard Confronts Climate Change that need to be considered: scare mongering by anecdote and Bandolini’s BS principle. It is a sad commentary on the media today that this presentation had so little substance other than anecdotal “evidence” that climate change is adversely affecting vineyards in the Great Lakes. Showing that the presumptions in the presentation are weak is a perfect example of Alberto Brandolini’s BS principle: “The amount of energy necessary to refute BS is an order of magnitude bigger than to produce it.”

Anecdotal Evidence

Angelica A. Morrison’s newscast claims that “Problems from disease, like powdery mildew, and pests arise when temperatures extremes become the new way of life.” Interviewing a farmer who shows her some diseased plants purportedly shows the effects of the climate change in western New York. The evidence for extreme weather change is the farmer’s recollection: “We’ve had a very mild winter [in 2016] so almost everything survived,” he said. “But prior to that, the winter of 2014 to 2015, were extremely cold temperatures that I’ve never seen before. “And it killed a lot of vineyards that in the past we’ve had success with. We’ve done a lot of replanting and we try to choose varieties that can survive the winter.”

The presentation explains that the vineyard in question is in the Lake Erie Concord Grape Belt, which starts in western New York and extends to Pennsylvania and goes on to note that the area depends on Lake Erie to moderate temperatures. “The lake is supposed to be our great protector,” says Tim Weigle of the Cornell Cooperative Extension’s Lake Erie Regional Grape Program. The presentation notes that “Weigle, who advises grape farmers and works with them on managing their crops, says the lake doesn’t freeze over like it used to. When temperatures are prematurely warm, crops come out of dormancy, making them vulnerable to frost. ‘If the lake freezes then we don’t have those problems, but since it hasn’t been freezing all the time, we have run into more problems with frost and freezes,’ he says.”

Hypothesis

There are two claims in this presentation. The first is that in the winters of 2014 and 2015 there were extremely cold temperatures that the farmer has “never seen before”. The second is that when Lake Erie freezes over temperatures don’t warm up prematurely so crops are not damaged coming out of dormancy before the last killing frost of the season.

Analysis

In order to prove or refute the claims in this presentation complications immediately arise. There is no question that there is a warming trend in this region but what causes winter damage in the first claim? If damage occurs because of the lowest temperature of the year that can be checked easily but if it is the duration or number of days below some threshold temperature, the analysis gets more complicated quickly. For the second claim, if the problem is a period of temperatures so warm and so long that dormancy is broken followed by a killing frost the trends analysis for that is even more complicated.

The second claim confuses me. In particular, this statement “If the lake freezes then we don’t have those problems, but since it hasn’t been freezing all the time, we have run into more problems with frost and freezes”. Lake Erie moderates air temperatures because the seasonal lake temperature lags behind the seasonal air temperature. As a result, in the fall frosts don’t occur as early because the warmer lake tempers the freezing air. In the spring there is moderation for warming and cooling. The lake is generally cooler and slows the plants coming out of dormancy but also protects them if a cold snap comes along because its temperature is above freezing. My problem with the presentation statement is that those effects are eliminated when Lake Erie freezes over. When Lake Erie freezes over downwind air temperatures are not moderated by a source of above freezing water and as a result temperatures are not moderated and, most visibly, the Lake Erie lake-effect snow machine is cut off. Therefore, the moderating effect on frosts and freezes should be enhanced if the lake does not freeze over.

Numbers

The New York Climate Change Science Clearinghouse is described by its supporters as “a regional gateway to data and information relevant to climate change adaptation and mitigation across New York State. It provides climate science data and literature and other resources for policy-makers, practitioners, and the public, to support scientifically sound and cost-effective decision making”. I tend to be a little more cynical about its contents because it is biased towards alarmism. However, it does provide anyone with easy access to relevant climate data.

All of these parameters show what we would expect in a warming climate: daily minimum, maximum, and average temperatures are increasing, cooling degree days, growing degree days and growing season length are increasing, heating degree days are decreasing, the counts of warm days are increasing and cool days are decreasing.

With respect to claim number one that during the winters of 2014 and 2015 there were extremely cold temperatures that the farmer has “never seen before”, we can check the claim by looking at the count of number of days below 0 F. Unfortunately the Fredonia monitoring site stopped operating in 2011 so I used the nearby Buffalo airport site. In 2014 there were six days of below zero temperatures and in 2015 there were 12. In 1979 there were 11 days and looking back there is nothing that unusual about six days that suggests “never seen before” is verified. In fact between 1976 and 1985 there was only one year that was below six days.

Unfortunately, none of the parameters on the Climate Data Grapher can be used to necessarily support or refute the second claim about ice cover and dormancy. A graph of annual maximum ice cover for Lake Erie (available from the NOAA Great Lakes Environmental Research Lab) does support the claim that the lake does not freeze over as much as in the past but as is the case with readily available temperatures it may be the duration and timing of ice cover that affect crop dormancy.

As I explained above I don’t think ice cover affects dormancy but to determine if there is a trend in dormancy that analysis is a bigger deal than I can handle. First you would have to determine the conditions that break dormancy: temperature and duration of temperature above some threshold. If the potential effect is exacerbated by frozen ground that has to be included. Daily maximum and minimum temperature data are readily available but you would need to develop a program to analyze that data to determine the annual end of dormancy and the date of the last killing frost. If you can show that the end of dormancy is coming earlier in the year and the date of last killing frost is not also coming earlier that would support the claim. If the date of the last killing frost is also coming earlier then that would not support the claims. More importantly, would be to see how often a late frost caused problems with plants historically.

Conclusion

This presentation illustrates problems with the media relative to climate change reporting. This furthers the narrative that climate change effects are happening now for the public who has neither the time nor expertise to evaluate the claims. I heard it on NPR – it must be true. It is a sad commentary on the media that this presentation had so little substance other than anecdotal “evidence” that climate change is adversely affecting vineyards in the Great Lakes. On the other hand if anyone wants illustrations of two of my pragmatic environmentalist principles it offers vivid examples. Clearly this is a sound bite environmental news report and refuting its baloney took at least an order of magnitude more work. If you wanted to support or refute the dormancy claim it would be another order of magnitude of effort.

New York’s energy planning process continues its efforts to meet the aggressive goals of a remodeled energy system that relies on renewable energy. The latest boondoggle in that effort is a plan to price carbon in the wholesale electric market. I have not been able to let that go by without throwing in my two cents so this post describes my second submittal in the formal proceeding. I have been submitting my comments because I am convinced that all these efforts will cost extraordinary amounts of money but will have no discernable impact on global warming or any of the purported effects.

In this regard, the NYISO began a project through its stakeholder process in the fall of 2016 to examine the potential for using carbon pricing within wholesale markets to further New York’s energy goals. Initially, The Brattle Group was retained by the NYISO to evaluate conceptual market design options for integrating the social cost of carbon, a widely recognized regulatory standard, into competitive wholesale energy markets administered by the NYISO. That analysis explored how carbon pricing can align wholesale markets with state energy policies and looked at several factors, including the effect on customer costs and emissions reductions.

The Executive Summary of the Brattle Report notes that “Harmonizing state goals and the operation of wholesale electricity markets could leverage market forces to more efficiently meet both state goals and traditional electric system goals of providing affordable, reliable supply.” This statement makes for a nice slogan, but the reality is different. In this post I show that there are barely enough electric sector emissions available to meet the 2030 goal and nowhere near enough for the 2050 goal. Because the proposed carbon price is on only one sector of the economy, the theory that increasing the price of carbon will drive the market to less carbon intensive alternatives fails. Instead, driving up the price of electricity makes the conversion to electric based residential heating and transportation more difficult. I consider these fatal flaws to the proposed initiative.

The Reforming the Energy Vision (REV) state energy goals in 2030 are a 40% reduction in Greenhouse Gas (GHG) emissions from 1990 levels and a 50% renewable generation. In 2050 the goal is an 80% Reduction in GHG emissions from 1990 levels. The NYSERDA Patterns and Trends document notes that the 1990 Carbon Dioxide equivalent (CO2e, standing in for GHG) emissions were 235.8 million metric tons so the 2030 goal is 141.5 million metric tons or a 94.3 million ton reduction. In 2050 the goal is 47.2 million metric tons which is a 188.7 million metric ton reduction.

Figure 1 shows the trends in New York State CO2e emissions, energy (TBtu) and CO2e intensity which is the emissions divided by the energy. Note that the energy used in New York rose until 2005 and has since started to drop while the pattern of CO2e has ebbed and flowed more but has also dropped since 2005. The question is whether pricing carbon in the electric sector can affect these trends to meet the state goals. In order to do that we have to look at what drove the trends.

In order to reduce GHG emissions there are three direct approaches:

Replace energy sources that generate GHGs with ones that don’t

Energy efficiency – use energy more effectively

Energy conservation – use less energy

In addition there are a couple of indirect ways: reduce the population and reduce the gross state product or economic growth. I mention those two methods to point out that neither approach is politically palatable as an approach to reduce GHG emissions and that historically the gross state product has increased and population has stayed relatively constant.

The NYSERDA Patterns and Trends document contains the energy and emissions data by sector needed to evaluate the causes of the observed reductions. Figures 2 and 3 show the trend of primary energy consumption by the residential, commercial, industrial, transportation and electric energy production sectors by total energy use (TBtu) and % of total. Residential has bounced around but is effectively the same since 1080 and the commercial sector trended up but has trended down to roughly the same levels as 1990. Given the growth in the economy it appears it appears to me that investments in conservation and efficiency have produced some results. The most notable decrease has been the industrial sector, down over 200 TBtu since 1980. While efficiency and conservation have helped with that it is more likely a result of the decline of the industrial sector in New York. Transportation energy use has grown consistently since the mid-80’s. The electricity sector grew until approximately 2005 and has since dropped. It does not appear on the basis of historic trends that energy conservation and energy efficiency will be major factors for compliance with the emissions goals.

That leaves carbon emission reductions to make the majority of the reductions necessary. Figures 4 and 5 show the trend of GHG emissions by the residential, commercial, industrial, transportation and electric energy production sectors and % of total. Note that these are emissions from fuel combustion only so the totals are not the same as shown before. The emissions trends for residential, commercial, industrial and transportation sectors are similar to the energy trends. Residential and commercial are roughly the same, industrial is down, and transportation is up. Electricity sector emissions are down more than the total energy. This is the only sector the proposed price on carbon will affect.

Because the electric generation sector is the only sector that will be affected by the proposed carbon price we need to evaluate the sources of electricity generated in New York. Figure 6 shows the percentage of electricity provided by different sources: coal, natural gas, petroleum (residual oil and distillate), hydro, nuclear, imports, other (landfill gas & biomass), wind and solar. Coal and petroleum have gone down significantly since 1990. Natural gas has increased significantly as has imports. After Nine Mile Point unit 2 came on-line nuclear has stayed about the same as has hydro. In the past few years enough solar and wind have come on line to appear on the chart. Figure 7 shows the total energy provided by the same categories. Clearly the biggest changes have been the reduction of coal and petroleum fuel use and increase of natural gas and imports.

In order to determine how much the carbon pricing program can directly affect CO2e emissions we need to look at the electric sector emissions relative to emissions from the rest of New York State. Figure 8 shows the trends and Table 1 NYS Trend of CO2 by electric sector and rest of state shows the data. Statewide coal and electric sector oil have gone down 55 million metric tons but since 1990 natural gas has gone up. It can be argued that for the most part the major decreases in coal and oil were the result of changes in the relative cost of fuel and had nothing to do with New York State policy. Moreover, the State has drafted regulations to eliminate the use of coal so carbon pricing will have no effect on those emission and there are only 3.9 million metric tons of reduction available anyway. With respect to electric sector emissions, no further oil use reductions are expected because the current levels represent the minimum emissions necessary to maintain oil as a backup and emergency use fuel. That leaves natural gas emissions.

Overall, the total emissions in 2015 are only down 18% to 169.5 million metric tons and the 2030 target is 141.5 million metric tons so further reductions of 28 million metric tons are necessary. Putting a price on electric sector carbon could, in theory, reduce the total sector emissions of 29.2 million metric tons. However, the primary way to reduce emissions from the other sectors is to replace fuel combustion with electricity. The unintended consequence of the carbon price then will be to increase the price of electricity making those conversions less attractive.

On one hand carbon pricing is touted as a market-based solution to carbon reductions. However, that only works when the tax is applied to the entire economy. The proposed New York carbon pricing approach is only for the electric generation sector, so market intervention will be required to subsidize the electrification conversions necessary to meet the targets if only because the proposal increases the cost of electricity making conversions less attractive. As soon as that happens the elegant market-based solution devolves into special interest lobbying at the expense of the general public.

Already labor unions, community groups, environmental organizations, faith communities, and environmental justice advocates are supporting just such a carbon tax scheme. While the New York State Climate and Community Protection Act (CCPA) (S.8005 / A.10342) covers all sectors it specifically proposes to not only return the revenues to ratepayers but also includes subsidies to renewable energy sources in general and targeted subsidies as well and worker and community support.

While the intent of carbon pricing to harmonize state goals and the operation of wholesale electricity markets to leverage market forces to more efficiently meet both state goals and traditional electric system goals of providing affordable, reliable supply makes for a nice slogan the reality is different. There are barely enough electric sector emissions available to meet the 2030 goal and nowhere near enough for the 2050 goal. Because the proposed carbon price is on only one sector of the economy, the theory that increasing the price of carbon will drive the market to less carbon intensive alternatives fails. Instead, it drives up the price of electricity which makes the conversion to electric-based residential heating and transportation more difficult.